Friday, 23 December 2011

Why do we pay wind farms to switch off?

I have been looking at the new report from the Adam Smith Research Trust which purports to demonstrate that investment in renewable energy does not promote energy security for a developed society (1). There has been a flurry of criticism of the report (2) and I shall probably comment on it in more detail in a little while. However, one of the things that caught my attention was its discussion of payments to wind farms to stop generating when there is too much wind for the grid to handle. These payments are significant: £4.3 million paid to Scottish Wind Power between May 2010 and June 2011 (3). However, wind farms are not the only type of power station to receive constraint payments. In the year 2010/2011 around £170 million was paid out (4). I have seen one claim that only 0.1% of constraint payments is made to wind farms (5), but I have not been able to find the figures that is based on. It looks to me more like 5-10% at most, which is still a small fraction of the total payments.  So why are we paying power stations to switch off and not generate?

The problem seems to be the complex electricity supply bidding system and the way that generators trade with the National Grid. The Grid makes a prediction as to how much electricity will be needed over the next few hours and generators compete with each other to supply this. The generators who have won the contract can decide which of their power stations to use, and they notify the National Grid of their intentions. At that point, the Grid people can determine if the physical network can handle this. Each cable can handle only so much power safely, and some parts of the system are better connected than others. If there is too much generation in a constrained section of the grid, then the National Grid has to hold another auction, called the Balancing Mechanism, to ask some of those generators not to generate after all and some others to supply instead.  The excess generators are asked how much payment they will demand not to generate and the lowest bid wins. You can also have import constraints where the demand is too high in a constrained section and extra payments are made to encourage generators in that area who did not win the bid. In either case, the payments are called constraint payments. They are necessary because this all happens in a rush just before the electricity is needed and it takes time for power stations to adjust power generation. Wind farms often win the auctions for constraint payments because it is relatively easy for them to switch on and off.

The underlying reason for constraint payments is that the physical grid is not strong enough to accommodate flexibility in location of supply. The answer to this is to improve the grid. This of course costs money, especially if planners require that cables are buried rather than carried overhead.

Constraint payments form a very small part of our electricity bills. The total electricity generated in 2010 was 380 TWh (6). £170 million is therefore 0.04p per kWh generated. I am currently paying about 12p/kWh so the constraint payments are only 0.4% of my bill.

(1) Renewable Energy Vision or Mirage? (Adam Smith Research Institute)
(2) Scottish Renewables slams 'flawed' energy report (BBC)
(3) Scottish Wind Power Constraint Payments Update (Renewable Energy Foundation)
(4) Impact Assessment of the Transmission Constraint Licence Condition (TCLC) (DECC)
(5) ‘Constraint payments’ to wind farms just 0.1% of total (Orbit Communications)
(6) Digest UK Energy Statistics Chapter 5 Electricity (DECC)

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